I learn this couple of days ago. This is one interesting fact to consider when choosing broker. I share it here some information I have learned. Because forex market is not regulated, the rate and spread is difference between different brokers; unlike stock market where there is central exchange for the trading to take place.
Market Maker Broker
As the name implies, Market Maker set the price of the market. They set their own Bid and Ask value. These brokers earn from spread (difference between bid and ask price). They usually fix their own spread. Some broker may show different spread on demo account and live account. There are speculation that Market Makers create spikes to take out customer's stops. During times when volatility is high, these brokers might freeze their platform or increase the spread a lot. Lately there are many competitors and usually the spread are keep very competitive.
The advantages of these brokers are they usually required less capital to open an account. Usually the offer higher leverage too (this could be a disadvantage too). Another advantage is that they usually offer more user friendly trading platform.
ECN Brokers
ECN stands for Electronic Communication Network. These brokers pass on price from multiple participants, such as banks, market makers, as well as traders. They will display the best price straight from the market. There are no manipulation of price and also the spread. Usually spread will be varying from time to time. Sometimes there might even be no spread for the traded pair. ECN brokers earn from commission. They charge commission from each trade their customer made.
The biggest advantage on ECN is there are no manipulation on price and spread. On some times, the spread might even be zero. Their price also might be more volatile, and this seems like good news for scalper.
One disadvantage of ECN broker is lack of user friendly platform. Another disadvantage is there is commission for each trade; however this might be better than having a spread that being manipulated. Another point about ECN is they need more capital to setup account.
Above are few items I learn about ECN and Money Maker brokers. Different traders might choose their own type of brokers based on the pro and cons.Read about Dealing Desk, Non-Dealing Desk, STP and ECN brokers here at http://www.100forexbrokers.com/stp-ecn-brokers. Read about difference on Market Makers and ECN broker here, on Investopedia: http://www.investopedia.com/articles/forex/06/ECNmarketmaker.asp
